It seems like even when investors are pulling out, they're
putting that money right back into other hedge funds.

That's according to a Barclays survey released this week of 340
hedge fund investors managing $8 trillion.

Nearly half of the investors polled said that they are redeeming
from their hedge funds and are reallocating that money
to other funds, the survey said. And nearly a third are
doing nothing with their hedge fund allocations at all.

Why are investors staying loyal to hedge funds? Here's Barclays:

"One of the most important reasons is that it is difficult
to find an alternative with similar risk / return
characteristics. And when the risk-adjusted returns are
combined with the low correlation they tend to have, the
impact on investors' portfolios tend to be positive. Indeed,
according to our analysis ... a majority (55%) of HFs, even in a
year like 2015 where HFs did not perform particularly well,
would have been additive and improved the efficient frontier
of the 60 / 40 portfolio. Thus while performance may have
seemed poor on a stand-alone basis, there appears to be a
role for HFs in investors' portfolios."

Barclays

That's not to say that redemptions aren't
concerning. Some big investors, like pensions, are pulling
out, citing hedge funds' high fees and underperformance. Around
one in five investors are reducing their hedge fund
allocation, according to the survey, with many putting their
money into private equity instead.

Investors yanked nearly $21 billion from the $3 trillion
industry in June — the first month that
even big funds that performed well last year saw money flow
out, according to eVestment, a data tracker.

But some in the industry don't think that that's necessarily
a bad thing.

"It seems like the industry is about to shake itself out," Jeff
Hudson, a partner at Cedar Ridge Partners, said in a recent
chat with Business Insider. "It's probably overdue."